When Consolidating Student Loans Helps

June 13, 2018

Student loan debt can sometimes become unmanageable. Whether you didn’t fully realize the extent of your loans or landed in some hard financial times, student loans never really back down from the fight. Some borrowers use debt consolidation to help with repayment. However, it’s not useful for everyone. Here are a few situations when consolidating student loans helps.

How to Know When Consolidating Student Loans Helps

Now that you are out of college and in the real world, you may be wondering about student loan consolidation. Just like consolidating other unsecured debts, you would combine all your student loans into one new loan. Consolidation leaves you with just one payment to one lending institution.

Borrowers with federal student loans can apply for a Direct Consolidation loan. Borrowers with private loans also have options to consolidate through their loan service or a competitor. However, federal and private loans cannot be combined into one loan together. Watch this video to get started learning more about consolidation.

Reasons You May Want to Consolidate Your Student Loans

Multiple Student Loans

As we mentioned above, consolidating student loans helps make repayment simpler. Rather than tracking multiple loans across multiple lenders, you would only have one loan after consolidation.

You Have Good Credit

Your credit history and credit score will factor into the terms and conditions of your consolidation loan. If you have less than stellar credit, wait until it has recovered to apply for consolidation. This will help you get accepted and better terms.

Loans with Variable or High Interest Rates

If you have student education loans with variable interest rates, consolidation may be a good step for you to take. You may also save money if you have a mix of interest rates since consolidating your loans will give you a new fixed interest rate. For some, a fixed interest may end up costing you money since it’s a weighted system. If you have a large loan with a high interest rate, you may want to keep it separate from consolidation.

You Need a Lower Monthly Payment

Are you struggling to manage all your bills and debts each month? Consolidating your student loans should lower your monthly payment. Unfortunately, it will extend your repayment timeline. However, some borrowers can avoid defaulting on their loans having a lower monthly payment.

Federal Student Loan Benefits Don’t Apply to You

Some borrowers with federal student loans are eligible for the Public Service Loan Forgiveness program. Consolidation would eliminate your ability to qualify for this program. However, if you are not in a field related to this program, you won’t be at a loss. Also consider graduated repayment options offered through federal student loans before committing to consolidating your federal loans. Private loans are much more straightforward. There aren’t too many reasons not to consolidate private loans as long as the terms are good. Finally, read more about Why Consolidation is a Bad Idea for those who hold federal student loans.

Keep in mind when consolidating student loans helps as you do your research. Speak with your college’s financial aid office, some of your peers, the Department of Education. ACCC can also offer advice on your unique financial situation. Use as many reputable resources as you can to get a game plan for debt repayment.

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Michelle is a regular contributor to Talking Cents. She has taken several financial courses on debt management and is ready to circulate what she has learned from them as well as lessons from her own life- family to DIY projects to student loan debt.

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Talking Cents was created by the staff of the nonprofit organization, American Consumer Credit Counseling (ACCC). Not satisfied with providing credit counseling, debt management, and financial education alone, these renegade employees took to the blogosphere in the hopes of helping not only their current clients, but the rest of the world at large to tackle more of the topics affecting people’s everyday financial lives.